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[January 24, 2013]
UBS, Barclays reaffirm Mellanox recommendations
Jan 24, 2013 (Globes - McClatchy-Tribune Information Services via COMTEX) -- UBS and Barclays Capital have both reiterated their recommendations for Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), at "Buy" and "Overweight", respectively, despite the company's reduced guidance for the third quarter of 2013. Both investment banks, however, cut their target prices: UBS from $65 to $55, and Barclays from $90 to $82.
Mellanox's share price fell 19.3 percent in premarket trading on Nasdaq today, after publishing its financials, to $41.72, giving a market cap of $1.7 billion, and the share fell 13.4 percent in morning trading on the TASE to NIS 156.10.
Both UBS and Barclays note Mellanox's first quarter guidance of $78-83 million, which is below Barclays' forecast of $123 million revenue and analysts' average on "Bloomberg" of $130 million. They both cite the $30 million in inventory build-up at an OEM, and UBS adds that Mellanox has put in controls to improve visibility and prevent a reoccurrence, but the damage is done. "Management must both run the business more crisply and communicate better with investors to restore credibility. Hitting first quarter guidance and giving reasonable growth guidance for the second quarter will be a necessary first step." UBS analysts Steven Milunovich, John Roy, and Peter Christiansen say that Mellanox's growing pains hurt, but that they still believe in Inifiband. "We continue to hear of InfiniBand design wins and new adoption. Storage looks particularly ripe to us as flash memory and faster multi-core CPUs cause datacenter networks to upgrade. Mellanox now has 10 cloud customers, and Web 2.0 companies are starting to install InfiniBand. Further out we could see Mellanox's MetroX for long-haul communication open up new markets for InfiniBand." Barclays analyst Joseph Wolf agrees, saying that he expects growth to resume in 2014, driven by Infiniband and 10Gb/s Ethernet opportunities. "Based on our checks with partners and customers, we do not believe that Mellanox is losing market share or that there has been a dramatic decline in absolute demand. Management remains optimistic and is committed to growing the business -- it expects 2-3 new product "tape-outs" in 2013 to support future product development and growth," he says.
The UBS analysts conclude that Mellanox could beat the lowered expectations of 2013, as InfiniBand gains traction.
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